Second Lien and HELOC Demand Exceeds Supply in Secondary Market

 

Denver (March 27, 2014) – Very few packages of home equity loans, including second liens and home equity lines of credit, were offered in the secondary market during 2013, according to a market activity analysis by residential whole loan sales advisor MountainView Capital Group. The lack of offerings was in spite of investor demand and an uptick in new origination.

“Second lien trading activity during 2013 was light and down from 2012 levels, both in total unpaid principal balance and number of transactions,” said Jonas Roth, a managing director at MountainView Capital Group and an author on the company’s latest market activity analysis. “This was primarily due to a finite number of sellers, and 2014 looks like more of the same,” added Roth.

For its part, MountainView was an advisor on 10 second lien deals, involving $604.5 million of UPB, during 2013. The largest deal involved non-performing loans with $319 million of UPB.

In 2012, the company was an advisor on 13 deals, involving $619.3 million of UPB.

Non-performing second liens had higher demand than performing second liens during 2013. However, large financial institutions, the major holders of non-performing second liens, were unmotivated to sell these assets, even though massive amounts are migrating to an out of statute category.

The overall dwindling supply of second lien loans has some investors starting to model non-performing first liens, based on the fear that they cannot invest the capital they raised.

“Bright spots for 2014 are that there are more niche buyers with state-specific inquiries, significantly more capital on the sidelines looking for product, and stronger pricing versus what we have seen in the past,” said Roth.

Pricing for performing second liens with life of loan clean pay histories is generally in the mid 60s to low 70s as a percentage of UPB. Additionally, there are a few buyers who have paid into the 80s for specific characteristics such as higher coupon, lower combined loan-to-value percentages, and overall larger pool sizes. Re-performing second liens trade in a wider range: from the low 20s to the 50s, depending on consistency of cash flows and other favorable pool characteristics.

Secured, non-performing second lien loans trade between one percent and five percent of current UPB. The high end of the range would have loans that include attractive first lien statuses and CLTVs, low bankruptcy percentages, and favorable geography.

Unsecured, non-performing seconds trade in the 10 to 50 basis point range. Higher bankruptcy percentages and out of statute loans are the reasons pricing continues to fall.

 

About MountainView Capital Group

MountainView Capital Group, a wholly owned subsidiary of MountainView Capital Holdings, has provided advice on the sale and purchase of residential whole loans since 1993. The company seeks these assets for the MountainView Mortgage Opportunities Funds and advises other buyers and sellers. In 2013, the company reviewed 748 deals with total unpaid principal balance of $26.4 billion and closed 395 transactions involving $2.1 billion of UPB.

 

About MountainView Capital Holdings

For 25 years, MountainView Capital Holdings has been focusing on the capital markets and financial advisory needs of the financial services industry while specializing in fixed income and residential mortgage assets. With expertise in sales and trading, analytics and asset management, MountainView is uniquely qualified to create value for clients in all market conditions, and the firm is continually building on a longstanding commitment to offer a broad range of services. Visit MountainViewCapitalHoldings.com to learn about the services and credentials of each MountainView company.

 

Media Contact

Troy Rusniak | 303-870-8235 or trusniak@mvcg.com